Free Site Registration

CHX Speed Bump Approved by SEC

Traders Magazine Online News, October 23, 2017

John D'Antona Jr.

After much ado, the Chicago Stock Exchange just received approval to implement its own trading speed bump.

The Securities and Exchange Commission on October 19th approved a pilot program for the CHX’s  Liquidity Enhancing Access Delayed (LEAD). The pilot program will be implemented on February 1, 2018, and has a timeframe of 24 months, during which time CHX will collect and publicly disclose data on LEAD’s market impact.

LEAD was first announced in February of this year, taking the place of an initial speed bump proposal called Liquidity Taking Access Delay (LTAD). LEAD will implement a 350 microsecond speed bump that will apply to all orders, except for liquidity providing orders submitted by LEAD Market Makers (LMMs), a new class of market maker subject to heightened quoting and trading obligations on a security-by-security basis. The speed bump will provide LMMs with an unprecedented risk management tool to protect against predatory trading strategies, such as latency arbitrage, which leverage microsecond speed advantages to pick-off stale quotes during times of market transition. By deemphasizing speed as a key to trading success, LEAD will encourage LMMs to display larger orders at aggressive prices, which will, in turn, enhance displayed liquidity and price discovery to the benefit of the investing public.

In a blog posting CHX defined “latency arbitrage” as “the practice of exploiting disparities in the price of a security or related securities that are being traded in different markets by taking advantage of the time it takes to access and respond to symmetric public information.”

“We appreciate the opportunity to implement our pilot program and demonstrate LEAD’s positive effect on market quality,” said CHX CEO John Kerin. “We’re confident that our pilot program will curb latency arbitrage and will eventually become a standard CHX offering.”

Please click here to view the full SEC approval order here.

For more information on related topics, visit the following channels:

Comments (0)

Add Your Comments:

You must be registered to post a comment.

Not Registered? Click here to register.

Already registered? Log in here.

Please note you must now log in with your email address and password.